Question 1

When a monopolistically competitive market opens up to international trade, the individual firm-level demand curves faced by each firm are affected. Even before this prompts market entry or exit (which would further affect these individual firm-level demand curves), they shift outward (i.e., demand increases) and become flatter.

Part (i):Explain why opening up to trade leads theindividual firm-level demand curves to shift outward.

Part (ii):Explain why opening up to trade leads theindividual firm-level demand curves to become flatter.